Amateur Status, Athlete Trusts, Sole Proprietorship

It is important to keep in mind that accepting sponsorships may impact an athlete’s status as an Amateur Athlete. Many NSOs will require that, in order to maintain amateur status, any money the athlete receives must be put into an athlete reserve fund or athlete trust. A reserve fund is a special bank account where money can be deposited and only withdrawn for sport-related expenses. In most cases the NSO will set up and administer the athlete reserve fund or trust. Regulations regarding amateur status and athlete reserve funds vary greatly depending on the sport. It is very important that athletes become familiar with the particular rules of their sport before seeking out or accepting sponsorship agreements. It is recommended that if an athlete is interested in pursuing sponsorship, he or she should speak to an accountant to learn about setting up an athlete trust or reserve fund. This will allow for the acceptance of sponsorship funds while maintaining amateur status. Athletes should consult the athlete representative about organizing an accounting seminar for the team to save the personal expense of consulting an accountant.

Setting up an athlete trust or reserve fund not only helps to maintain amateur athlete status while receiving sponsorship funds but can also benefit the athlete’s future. A new income initiative by the Government of Canada, Economic Action Plan 2014, proposes to allow income contributed to an athlete trust to qualify as earned income for the purpose of determining annual RRSP contributions. This action plan would provide retirement savings opportunities through income contributed to an amateur athlete trust on a tax-assisted basis.

This plan will apply to any athlete who is a member of a Registered Canadian Amateur Athletic Association (RCAAA) and who is eligible to compete in an international event as a member of a national team. Economic Action Plan 2014 will offer a tax deferral for up to eight years, after an athlete ceases competing as a Canadian national team member, for income contributed to an athlete trust as well as investment income earned in the trust. For more information on Economic Action Plan 2014 see: http://actionplan.gc.ca/en/blog/economic-action-plan-2014.

Sole Proprietorship

One option that may benefit athletes interested in pursuing sponsorships is to set themselves up as a sole proprietorship (essentially operating under a business name). The cost to register a business is approximately $60 and offers benefits including but not limited to the avoidance of lengthy transactions with their NSO by getting cheques made out to the business; and writing off certain expenses for tax saving purposes. It is recommended that those interested in setting up a sole proprietorship speak to an account.

Sponsoring an athlete that is set up as a sole proprietorship is also appealing to sponsors. The sponsor is able to write off 100% of the funds they provide to the athlete by claiming it as a marketing expense as opposed to an official tax deductible. Setting up a sole proprietorship will likely assist you in your self-marketing strategy and will make you a strong candidate for sponsorship agreements.

Considerations
It should be noted however that this type of arrangement might have consequences for claiming tax savings under the Economic Action Plan 2014. Setting up a business may remove the necessity of creating an athlete trust to hold any sponsorship money that is received. As the Economic Action Plan 2014 only applies to income contributed to an athlete trust it is unlikely a sole proprietorship would benefit from this income initiative. While there are tax benefits of setting up a sole proprietorship it is important to speak to an accountant to see where the greater benefit lies and decide which arrangement is best for you.

It is also important to review any rules your NSO may have regarding sole proprietorships to ensure it does not affect your obligations under the athlete agreement or your amateur status. These rules will vary from sport to sport so it is recommended that you speak to your Athlete Representative to learn about rules specific to your sport and how they may affect you.

For step-by-step instructions on setting up a sole proprietorship go to: